2021 (1) TMI 1041 - HC - Income Tax

Court dismisses appeal, upholds Section 263, denies deductions under Section 10A.

The court dismissed the appeal, ruling against the assessee and in favor of the revenue. It found the invocation of Section 263 justified due to errors in ... Revision u/s 263 - Eligibility of benefit of deduction under Section 10A - HELD THAT:- In the instant case, the period of 10 consecutive years would start from Assessment Year l995-96 and would end with Assessment Year 2008-09 - period of 10 year commences from 1995-96 irrespective of the fact that whether or not the assessee has claimed benefit in between the Assessment Years and the period of 10 consecutive years therefore, in view of the plain language of the enactment cannot be extended. AO without examining the aforesaid aspect of the matter granted the benefit of deduction Section 10A of the Act to the assessee. The view taken by the AO cannot but be said to be erroneous and prejudicial to the interest of the revenue. The view taken by the Assessing Officer cannot be said to be a plausible view. No reasons have been assigned by the Assessing Officer for holding the assessee eligible for benefit of deduction under Section 10A - Since, the issue with regard to eligibility of the assessee for deduction under Section 10A of the Act for Assessment Year 2008-09 beyond a period of 10 consecutive years was not subject matter of order of assessment itself. Therefore, the same could not have been the subject matter of the appeal before the CIT (Appeals) and thus, in the fact situation of the case there was no bar in invoking the powers under Section 263 - The income of the assessee from staffing, which was not an income from export of computer software was also allowed by the Assessing Officer without any application of mind and without any enquiry. Therefore, the Commissioner of Income Tax has rightly invoked the powers under Section 263 - Decided against assessee. Issues Involved:1. Invocation of Section 263 of the Income Tax Act.2. Initiation of proceedings under Section 263 for an order merged with a consequential order under Section 143(3).3. Correctness of action regarding tax holiday under Section 10A.4. Lack of enquiry by the Assessing Officer.5. Denial of benefit under Section 10A for AY 2008-09.6. Treatment of each unit as a separate undertaking under Section 10A.7. Denial of benefit under Section 10A for income from staffing activity.Detailed Analysis:Issue 1: Invocation of Section 263 of the Income Tax ActThe court examined whether the ITAT was correct in upholding the invocation of Section 263 despite the matter being under appeal before the Commissioner of Income Tax (Appeals) and the ITAT. The court noted that Section 263 allows the Commissioner to revise an order if it is erroneous and prejudicial to the interests of the revenue. The court found that the Assessing Officer’s order was indeed erroneous and prejudicial, thus justifying the invocation of Section 263.Issue 2: Initiation of Proceedings under Section 263 for an Order Merged with a Consequential Order under Section 143(3)The court considered whether the initiation of proceedings under Section 263 was valid for an order that had merged with a consequential order under Section 143(3). The court held that since the eligibility for deduction under Section 10A for AY 2008-09 was not examined by the Assessing Officer, the invocation of Section 263 was justified.Issue 3: Correctness of Action Regarding Tax Holiday under Section 10AThe court analyzed whether the ITAT was correct in upholding the order under Section 263 by the Commissioner, who was unclear about the correctness of the Assessing Officer's action in allowing a tax holiday under Section 10A. The court concluded that the Assessing Officer’s failure to examine the eligibility for the tax holiday rendered the order erroneous and prejudicial to the revenue.Issue 4: Lack of Enquiry by the Assessing OfficerThe court evaluated whether the ITAT was right in upholding the initiation of proceedings under Section 263 despite no lack of enquiry. The court found that the Assessing Officer had not made adequate enquiries regarding the eligibility for the deduction under Section 10A, thereby justifying the invocation of Section 263.Issue 5: Denial of Benefit under Section 10A for AY 2008-09The court examined whether the ITAT was correct in upholding the denial of the benefit under Section 10A for AY 2008-09 on the grounds that the appellant’s tax holiday period had expired. The court held that the period of 10 consecutive years for claiming the benefit started from AY 1995-96 and ended with AY 2004-05, thus the benefit could not be extended to AY 2008-09.Issue 6: Treatment of Each Unit as a Separate Undertaking under Section 10AThe court considered whether the ITAT was right in denying the claim to treat each unit as a separate undertaking for the purpose of Section 10A. The court upheld the ITAT’s decision, stating that the Assessing Officer had not examined this aspect, and therefore, the invocation of Section 263 was justified.Issue 7: Denial of Benefit under Section 10A for Income from Staffing ActivityThe court analyzed whether the ITAT was correct in upholding the denial of benefit under Section 10A in respect of income from staffing activity. The court found that the Assessing Officer had allowed the deduction without proper application of mind and enquiry, and thus, the invocation of Section 263 was appropriate.Conclusion:The court dismissed the appeal, answering all substantial questions of law against the assessee and in favor of the revenue. The court found that the invocation of Section 263 was justified due to the erroneous and prejudicial nature of the Assessing Officer’s order, which failed to properly examine the eligibility for deductions under Section 10A.